Which one of the following nations falls in the lower-middle-income category?

International Classification of Countries

International classifications of countries in categories according to selected indicators are used by international organizations for operational and analytical purposes. These classifications mainly relate to per capita income levels and indicators of development status. No unified system has been adopted by the international organizations for drawing up these classifications; thus, categories differ as between those used by the World Bank or the IMF.

In its 1994 World Economic Outlook publication, the IMF shows the following groupings of countries: industrial countries (23); developing countries (132); and economies in transition (23). In its 1995 World Development Report the World Bank sets out the following groupings: high income countries (39), middle income countries (111), and low income countries (60). Generally, a linkage can be inferred between income and development status in these categories. According to the World Bank, low-income and middle-income groups are usually referred to as developing economies. However, this is not always the case. For example, Greece and Portugal (two middle-income economies) are considered industrial countries by the IMF. And several countries which are included in the World Bank’s high-income category are not included in the IMF’s industrialized category (for example, several Middle Eastern oil exporters) and are therefore considered as developing economies by the latter.

While the main classification criterion used by the IMF and the World Bank for establishing country categories is that of per capita income levels, these institutions also classify countries by type of exports (e.g. fuels, non-fuel primary products, manufactures or services) and by net financial position or level of indebtedness. The World Bank also groups economies with populations fewer than one million in a separate table of the World Development Report.

Under the GATT system and now under the World Trade Organization (WTO), the principle of "self selection" holds, whereby members themselves choose their development status. However, in their publications the WTO follows the UN country classification and for budget purposes also makes use of the income criterion adopted by the World Bank. This is also the case in the Uruguay Round Agreement where "least developed" countries are defined as those with per capita incomes of less than US $1,000.

Along with basic economic indicators, the United Nations categorizes countries according to an additional human development indicator. As stated above, the U.N. "human development index" (HDI) combines various economic and social indicators in order to achieve a more comprehensive measure of development. In the 1994 Human Development Report of the United Nations Development Program (UNDP), classifications along these lines are shown for 173 countries as set out in the following categories: high-human development (53); medium-human development (65); and low-human development (55), with HDI values ranging on a scale between 0 and 1. In terms of the per capita income classification, the UN categories are the following: industrial countries (46), developing countries (127), and least developed countries (45). The UN industrial countries’ category covers the IMF similar category but also includes the IMF economies in transition grouping.

Classification of Countries in the Western Hemisphere in Terms of SRLDE Indicators

With the exception of Canada and the United States, all countries in the Western Hemisphere are developing countries. However, not all the developing countries in the hemisphere are small economies. Nor are all of the developing FTAA participants low-income economies or low-human development countries. The purpose of this section is to set out different groupings of Western Hemisphere countries according to the indicators discussed in the previous section for both size and level of development. Classifications set out by the international institutions will be considered first.

Classification of Western Hemisphere Countries by International Institutions

Categorization of Western Hemisphere countries by indicators selected by the IMF, World Bank and the United Nations is shown in Table 1. The 35 countries are grouped by subregions, namely: the North American Free Trade Area (NAFTA), the Central American Common Market (CACM), the Caribbean Community and Common Market (CARICOM), with a subcategory for the less developed countries of the Caribbean (OECS), the Andean Pact, and the Common Market of the Southern Cone (known by its Spanish contraction Mercosur). A category for OTHER covers those countries that do not belong to any of the above arrangements at the present time. These same groupings have been adopted throughout the study and are found in all the tables.

Examination of Table 1 shows that according to the IMF, only two countries in the hemisphere are classified as small low-income economies (SLIE), namely Guyana and Haiti.

According to the World Bank, the same two countries are classified as low-income economies (LIE). However, according to the United Nations indicators, four countries in the hemisphere are listed as low-income (LI) economies, namely: Honduras, Nicaragua, Guyana and Haiti. The two countries which are common to all three international classifications are therefore Guyana and Haiti. However, Haiti is the only economy in the region which is placed by the United Nations in the category of "least developed", as it is the only country to be listed as well as "low-human development" (along with low-income), while the other three low-income countries are classified as "medium-human development" economies.

Under the WTO classification, countries with less than US $1,000 of income per capita may consider themselves as falling in the "least-developed" category in terms of the obligations and disciplines set out in the Uruguay Round Agreement. However, it should be kept in mind that this is a self-selected category and not a strict requirement.

With respect to the income per capita indicator most often used as a proxy for level of economic development as explained above, a large gap exists in the Western Hemisphere as between the two industrial and high-income members of NAFTA, on one side, and other prospective FTAA partners. With the exception of the Bahamas, all remaining countries have GNP per capita levels of one-third or less than those of Canada and the United States. All NAFTA members are high-human development economies.

Among the other regional sub-groupings, the CACM includes three middle-income economies (Costa Rica, El Salvador, and Guatemala) and two low-income economies (Honduras and Nicaragua). Within this grouping, Costa Rica is considered a high-human development economy, while other CACM members are classified as medium-human development economies.

In the Caribbean region, some of the smallest countries in the hemisphere in terms of population size are classified by the international institutions as upper-middle income and medium-human development economies. In the CARICOM, with the exception of Guyana (low-income), all members are middle income countries. Among this group, Barbados is classified as a high-human development economy with all other members as medium-human development economies. Members of the OECS are roughly equally divided between lower-middle and upper-middle income economies.

The four members of Mercosur are all classified as middle-income by the World Bank and the U.N. The group includes two high-human development countries (Argentina and Uruguay) and two medium-human development countries (Brazil and Paraguay). The Andean Pact members are all considered middle-income countries, with Colombia and Venezuela high-human development economies, and the other three members (Bolivia, Ecuador and Peru) as medium-human development economies. As for the other Western Hemisphere countries not members of sub-regional groupings, both Chile and Panama are classified as middle-income and high-human development economies, while the Dominican Republic is classified as a middle-income and medium-human development economy.

Classification of Western HemisphereCountries by Indicators of "Size"

Table 2 shows the three main indicators for "size" reviewed above as applied to Western Hemisphere countries, that is population (column 1), size of territory (column 2) and aggregate national income or GNP (column 3). These indicators are also basic factor endowments which have been central features of neo-classical trade theory used to explain international trade patterns. For each indicator, Western Hemisphere countries are ranked by size.

The information set out in Table 2 when examined in detail shows a strong overall correlation, for the Western Hemisphere countries, between the three indicators of size. The smallest countries in terms of population are most often those with the least total land area and the lowest absolute levels of national income level as well. (Note, however, that this does not always hold; with only 27 million people, Canada is the largest country in terms of land mass in the hemisphere, though only a small part of it is really inhabitable).

Examining the FTAA participants by their ranking according to the three indicators in Table 2 shows that the smallest fourteen countries in the Western Hemisphere in terms of population (rankings 22 through 35) are the Caribbean countries. The smallest countries in the hemisphere in terms of land size are also the Caribbean countries, with two exceptions (Guyana and Suriname, as replaced by El Salvador and Haiti, which both have relatively small territories). The smallest countries in the hemisphere in terms of absolute GNP are again the Caribbean countries with one exception (Trinidad and Tobago, as replaced by Nicaragua). The smallest Western Hemisphere countries in population, land size and GNP are: Antigua & Barbuda, Bahamas; Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts & Nevis, St. Lucia, St. Vincent & the Grenadines, Suriname, Trinidad & Tobago (for land size: El Salvador and Haiti; and for GNP: Nicaragua).

With respect to trade dependency, or the fourth indicator of size, examining the first column in Table 3 shows the importance of exports in GDP for the Western Hemisphere countries. It also shows export and import shares in GDP and the net trade balance as a percentage of GDP (1993).

There appears once again to be a nearly perfect correlation between the smallest countries of the hemisphere in the Caribbean (with the exception of Suriname) and the degree of external trade dependency or openness which is far superior for the Caribbean countries than for that of all other FTAA participants (Costa Rica aside). Nine of the thirteen countries in the CARICOM grouping have export shares totaling more than 50% of GDP. In the case of two Caribbean countries (Antigua & Barbuda and Guyana) the figure reaches close to or above 100 percent.

The following countries show a dependency on exports higher than 25%: Antigua & Barbuda, Bahamas, Barbados, Belize, Chile, Costa Rica, Dominica, Grenada, Guyana, Honduras, Jamaica, Montserrat, St. Kitts & Nevis, St. Lucia, St. Vincent & Grenadines, Paraguay, and Venezuela.

The extremely close association demonstrated between the four measures of size provides support for classifying small countries in terms of population size alone, a procedure that has often been followed in the economic literature on small economies.

If countries in the Western Hemisphere with populations of 11 million or below (an arbitrarily chosen cut-off point) are classified into three main categories by size, namely: 1 million or less (extremely small countries), 1 to 5 million (very small countries), and between 5 and 11 million (small countries), then applying these size categories to the countries of the hemisphere gives the interesting result that 26 of the 34 (or around three-fourths) participants in the FTAA process may be classified as "small countries" of one type or another. The groups of countries which would result from such classification are the following:

• Twelve CARICOM members would fall into the "extremely small" group of less than 1 million inhabitants (Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Montserrat, St. Kitts & Nevis, St. Lucia, St. Vincent and Suriname);

• Seven economies would fall into the "very small" group (Costa Rica, Jamaica, Nicaragua, Panama, Paraguay, Trinidad and Tobago and Uruguay);

• Seven economies would fall into the " small" group (Bolivia, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti and Honduras).

Classification of Western Hemisphere Countries by Indicators of "Level of Development"

If 26 of the Western Hemisphere participants in the FTAA process may be thought of as "small" as evaluated by two or more of the four indicators of population, land size, GNP and export dependency, then how does this match with indicators of levels of economic development for the countries of the hemisphere? Western Hemisphere countries may be examined from the point of view of the four development indicators set out above with the help of data contained in Table 4, Table 5, Table 6 , Table 7 and Table 8. Table 4 shows various economic and social indicators (GNP / capita and the index of human development); Table 5 shows economic diversity in terms of the structure of production; Table 6 shows economic diversity in terms of the structure of trade; Table 7 indicates the tariff structure and Table 8 sets out the concentration of exports.

Selecting a benchmark for the per capita income criterion is once again necessarily an arbitrary exercise. The different international institutions have drawn different benchmarks for their cut-off lines in terms of classification of countries in the world economy into categories by level of income.

If the per capita income level of US $1,000 is taken as the cut-off point to qualify countries in the Western Hemisphere as "relatively less developed" (the same as that set out in the Uruguay Round Agreement), then according to the data in Table 4, five countries would fall in this category. If a slightly higher per capita income level of US $1,200 per capita is taken as the cut-off point for the "relatively less developed" category, then nine countries would be included. Of this group, three would be found among the CACM members, two among the CARICOM, two in the Andean Group and two outside any sub-regional groupings, as follows: Bolivia; Dominican Republic; Ecuador; Guatemala; Guyana; Haiti; Honduras; Nicaragua; Suriname

Examining the economic structure of FTAA participants in order to evaluate various indicators of economic diversity as an indicator of the level of development is a more complicated exercise. Extracting from Table 5 those countries whose production structures are heavily concentrated in a single sector (constituting more than 50 percent out of total production of goods) gives the following:

This can be complemented by examining the share of manufactured exports out of total exports as set out in Table 6. Any country showing a share of less than 20 percent may be considered as relatively economically undiversified in its production structure and, consequently, more vulnerable to structural rigidities and fluctuations in external demand and supply. Western Hemisphere countries in this group include the following: Honduras, Nicaragua, Ecuador, Venezuela. (Note, however, that data are missing for the Caribbean countries, some of which might belong to this category.)

None of the countries in the Western Hemisphere whose production structure is concentrated on manufactures or whose manufactured exports are substantial in terms of its total trade, appears among the group of lower income countries (with GNP per capita of US $1,200 or less). The relatively undiversified group of exporters deserve further examination.

Complementing the above information are the figures set out in Table 8 on export concentration by major commodities (services are excluded). Those countries in the Western Hemisphere whose exports are concentrated in manufacturing items (a diversified and dynamic broad sector) or whose exports are fairly evenly divided between the broad sectors of agriculture (primary products), mining and fuels, and manufactures, are better placed to withstand market fluctuations in demand than those countries with a limited range of exports. However, with the exception of a few countries (Canada, the U.S., Antigua and Barbuda, Argentina, Brazil, Uruguay and Panama, which are considered to be diversified exporters), all remaining Western Hemisphere economies show export concentration centered around one or a few commodities only. These products are all primary products (the exception being Haiti with textiles).

In terms of goods only (services aside), CARICOM members show exports concentrated in agriculture, minerals and fuels. Export concentration is very high in Jamaica and Suriname for alumina, and in Dominica, St. Lucia and St. Vincent and the Grenadines for bananas. CACM members’ exports are concentrated in bananas (Costa Rica and Honduras) and coffee (El Salvador and Guatemala).

Within Mercosur, Paraguay is highly dependent on cotton and seeds oil and Uruguay on wool. Andean group members export a high concentration of primary commodities, mainly natural gas, tin, zinc and copper, but also bananas and coffee. Venezuela is highly dependent on petroleum exports. For the remaining countries, Chile shows a large export concentration in copper and the Dominican Republic in sugar.

Grouping those countries in the Western Hemisphere whose production structure is relatively heavily biased towards the agricultural and/or mining sectors - and whose exports are mainly constituted by less than four main agricultural and/or mining products - into a category of relatively economically undiversified would yield the following grouping of 21 countries: Barbados, Belize, Bolivia, Colombia, Costa Rica, Dominica, Dominican Republic, Ecuador, Grenada, Guatemala, Guyana, Honduras, Jamaica, Nicaragua, Paraguay, St. Kitts & Nevis, St. Lucia, St. Vincent & Grenadines, Suriname, Trinidad & Tobago, and Venezuela

Of these 21 countries, one-third or eight of them were also identified above as belonging to the grouping showing an income level of less than US $1,200 GDP per capita, namely Bolivia, Dominican Republic, Ecuador, Guatemala, Guyana, Honduras, Nicaragua and Suriname. The other countries, though relatively undiversified as producers and exporters, exhibit an income level superior to this benchmark. Although their economies are relatively more fragile than those of more diversified exporters and their vulnerability to external shocks greater, it is nonetheless difficult to quantify the degree of vulnerability. Thus, attempting to make a correlation between these two variables is problematic.

Table 3 presents data on trade taxes for Western Hemisphere countries. Small economies tend to be more dependent on international trade taxation for revenue, as trade typically accounts for a larger proportion of GNP than in large countries. For the Western Hemisphere, as expected, the smaller countries show a relatively higher dependence on international trade taxes than larger countries. (Note that Colombia is an exception to this observation, being a relatively large country with high trade taxation). The governments of several countries in the CARICOM and the CACM depend on trade taxes for between 20 and 50 percent of their revenue, with important implications for public finance and trade reform. Selecting those countries which show a dependence on trade taxes in government revenue higher than 20 percent yields the following group: Bahamas, Barbados, Belize, Colombia, Dominica, Dominican Republic, Jamaica, Grenada, Honduras, Nicaragua, St. Kitts and Nevis, and St. Lucia

Only three of these 9 countries were identified above as belonging to a grouping with an income level of less than US $1,200 GDP per capita, namely: Dominican Republic, Honduras and Nicaragua. There is thus little direct correlation between the two criteria of level of per capita income and dependency on trade taxes, as all of the remaining countries show national per capita incomes higher than US $1,200. This suggests that the latter countries have chosen a different structure of taxation than others in the hemisphere, making them more dependent on external trade, but not necessarily having an impact on their economic performance or welfare.

Lastly, the human development index (HDI) as shown in Table 4 can be used as an indicator for the level of economic development. As explained above, the HDI indicator incorporates various social factors along with income level into a more comprehensive picture of development. If an arbitrarily selected cut-off point of 0.700 were to be applied to countries of the Western Hemisphere, this would yield a grouping of twelve countries as follows: Belize, Bolivia, Dominican Republic, El Salvador, Guatemala, Guyana, Haiti, Honduras, Nicaragua, Paraguay, Peru, Suriname.

All but three of the 12 countries listed also fall into the grouping of relatively low income per capita identified above, the exceptions being El Salvador, Paraguay and Peru which fall within the HDI benchmark but which show a slightly higher per capita income level than the benchmark of US $1,200 GNP per capita. Ecuador, on the other hand, falls within the per capita income benchmark, but shows a HDI higher than that selected. These exceptions aside, this indicator shows a strong correlation to that of per capita income.

Due to the difficulty of establishing close correlations between the above indicators, and the complexity involved in trying to empirically evaluate the latter three indicators, the broadly adopted indicator of per capita income will be retained in this study to serve as a proxy for the level of economic development in the following section.

Alternative Groupings of Western Hemisphere SRLDEs

After consideration of the above indicators of development, it does not appear possible to make correlations between country size (population, land area, national income and/or export dependency) and levels of economic development in the Western Hemisphere. Though Guyana, Haiti, Honduras and Nicaragua may be considered the weakest economies in the region according to various economic criteria (and are the only countries in the hemisphere specified as "low income" by the United Nations), they are not the smallest countries in terms of size of population or territory. The smallest economies in terms of size in the FTAA process are clearly the CARICOM countries. But most of the latter are middle-income economies, not low-income economies (according to the classification by the World Bank). This is the case for all of the OECS members.

In order to identify the subset of countries in the Western Hemisphere that would fall into the category of SRLDEs which the study has been asked to determine, both the criterion of "small" and the criterion of "level of development" must be taken into account. However, as the selection of benchmarks for both indicators is necessarily an arbitrary exercise, two alternative groupings will be presented in this study for consideration.

For purposes of simplification, population alone will be taken as the indicator of size, and per capita income alone will be taken as the indicator for level of economic development. The justification for this simplification was set out in the two sections above, where it was seen that a high degree of correlation exists between these two principal indicators and the other variables examined in each category, although this is more approximate in the latter case than the former. Subsets of countries in the Western Hemisphere are indicated below that would fall under the benchmarks set out for both criteria (using 1993 data), as drawn from Tables 2, 3 and 4.

The first alternative groups countries of 8 million or fewer inhabitants (size) and levels of GDP per capita of US $1,000 or less (level of development). The second alternative groups countries of 12 million or fewer inhabitants (size) and levels of GDP per capita of US $1,200 or less (level of development). Once again it should recalled that the selection of these benchmarks, particularly those for GDP per capita, is necessarily arbitrary and different benchmarks would have yielded different groupings of countries.

Combining the first two benchmark criteria yields the following subsets of either five or nine countries from the Western Hemisphere region, respectively, which might be considered as belonging to a group of SRLDEs.

The countries identified as belonging to the above two categories are geographically diverse and are not primarily from any one sub-region of the hemisphere. No country from NAFTA, Mercosur, or the OECS fulfills the joint requirements of size and level of development to appear in the above groupings, reinforcing the conclusion that there is no necessary correlation between the two indicators set out in the terms of reference.

Inadequacy of "Quantitative" Indicators

A mention should be made here of the inadequacy of relying solely on quantitative indicators when trying to categorize groups of economies. Although the quantitative yardsticks are the only concrete and, therefore, relatively objective ones available for the purpose of comparative analysis, nonetheless, reliance on these indicators results in the possible neglect of other important factors which may also impact considerably on economic performance. This is the case, for example, with measures of education, access to technology, management, competence of civil servants, and quality indicators of all sorts, as applied to products, production processes and personnel. Ideally, such indicators should also be examined along with the quantitative ones in deriving categories of countries. However, as these more qualitative indicators do not lend themselves to measurement in economic units, this is necessarily a more arbitrary and thus value-laden task which may well result in even more disagreement over the judgements used to categorize countries.

In light of the difficulties inherent in the inclusion of more qualitative indicators across the board, three alternative courses of action might be considered by the Advisory Group. The first involves the selection and application of as broad a number of quantitative indicators as possible to countries in the Western Hemisphere in order to balance the key variables traditionally used for classification. If the GNP per capita indicator is felt to be inadequate or insufficient to broadly classify economies, then alternative indicators can be substituted and/or added for this purpose. For example, among the several indicators analyzed above, it would be possible to develop an alternative grouping of SRLDEs on the combined basis of a low GNP per capita and a relatively undiversified export and/or production base. Or another grouping of SRLDEs on the combined basis of relatively low GNP per capita and high trade tax dependency; still another grouping could be constituted on the combined basis of a low GNP per capita and a low human development index. Reaching out further, it would be possible to think of combining three or more indicators to define a subset of countries.

The second course of action would involve the determination of a group of SRLDEs according to whatever criteria would be felt most appropriate by the Advisory Group and then to conduct a detailed examination of the economic situation of each individual country. This would allow for the inclusion of not only economically measurable variables but also of more qualitative variables such as those mentioned above. The relative state of preparedness of the country to undertake the expected disciplines comprising a FTAA would be assessed in the context of its actual level of economic development, physical and human infrastructure and institutional and administrative capacity. This would also permit an understanding of what types of technical assistance would be most appropriate and useful in order to assist in developing the required economic and institutional capacity in these SRLDEs.

The third course of action would be to allow countries to proceed with a determination of who should be included in the category of "small and relatively less developed" on the basis of self-selection. This has been the procedure followed within the GATT with respect to the categorization of both "developing" and "least developed", and this method has not met with any effective disagreement, though several of the "developing" members of the WTO have reached income levels per capita higher than those of some West European economies for some time already. On the other hand, not necessarily all countries who could qualify as "least developed" in terms of the per capita income criterion have chosen to belong to that category for trade policy purposes under the GATT/WTO, illustrating that to some extent this question is at least as much a political as an economic one. Within the Western Hemisphere, if the self-selection process were to be put in operation, then it would remain for the other countries of the FTAA to decide upon what type of economic measures/policies would be appropriate to extend on this basis to the self-selected SRLDEs.

What are lower middle income countries?

How many countries are lower or middle

Which country is considered to be low

What are 3 low